Sail Labrador Ltd. v. Navimar Corp. et al., (1998) 235 N.R. 201 (SCC)

• Judge: Iacobucci, Major, Bastarache and Binnie, JJ.
• Court: Supreme Court (Canada)
• Case Date: October 09, 1998
• Jurisdiction: Canada (Federal)
• Citations: (1998), 235 N.R. 201 (SCC);[1998] SCJ No 69 (QL);[1998] ACS no 69;169 DLR (4th) 1;[1999] 1 SCR 265;235 NR 201;44 BLR (2d) 1;1999 CanLII 708 (SCC)

Sail Labrador Ltd. v. Navimar Corp. (1998), 235 N.R. 201 (SCC)

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[French language version follows English language version]

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Temp. Cite: [1999] N.R. TBEd. FE.002

Sail Labrador Limited (appellant) v. The Owners, Navimar Corporation Ltée and all others interested in the Ship "Challenge One", her Equipment, Bunkers and Freights, and the Ship "Challenge One", her Equipment, Bunkers and Freights

(26083)

Indexed As: Sail Labrador Ltd. v. Navimar Corp. et al.

Supreme Court of Canada

Lamer, C.J.C., Gonthier, Cory,

Iacobucci, Major, Bastarache

and Binnie, JJ.

October 9, 1998.

Summary:

The plaintiff entered into a bareboat char­ter (the charterparty) with the owner of the Ship Challenge One, the defendant Navimar Corp. The charterparty contained a clause giving the plaintiff an option to purchase the ship after five years upon notice. When the plaintiff attempted to exercise the option, the defendant refused to sell the ship, alleging that the plaintiff breached several clauses of the charterparty. The plaintiff commenced an action against the defendant, seeking a dec­laration that it was entitled to exercise the option.

The Federal Court of Canada, Trial Divi­sion, in a decision reported 115 F.T.R. 128, granted the declaration. The defendant appealed.

The Federal Court of Appeal, in a decision reported 212 N.R. 256, allowed the appeal and dismissed the application for the declar­a­tion. The plaintiff appealed.

The Supreme Court of Canada allowed the appeal.

Contracts - Topic 8

General principles - Unilateral v. bilateral contracts - Sail chartered a ship from Navimar - The lease agreement contained an option to purchase - Navimar refused to allow Sail to exercise the option because of failure to comply with two conditions precedent - Sail submitted that the agree­ment consti­tuted a single bilateral contract which meant that the doctrine of substan­tial non-performance was appli­cable - Navimar submitted that the doc­trine was not applicable because the option consti­tuted a separate unilateral contract - The Supreme Court of Canada stated "that the lease and the option form a single bilateral contract. This single contract contains many terms, some relat­ing to the lease, others to the option. The option itself forms part of the con­sideration flow­ing from the respondent to the appel­lant under this bilateral con­tract" - See para­graph 49.

Contracts - Topic 9

General principles - Options - The Supreme Court of Canada considered whether an option to purchase may be exercised where there has been a default in the contract containing the option (in this case a bareboat charterparty) - See para­graphs 29 to 87.

Contracts - Topic 2051

Terms - Implied terms - General - Sail chartered a ship for five years from Navimar - The bilateral contract contained the lease agreement and an option to pur­chase - Because of a bank's error, Sail was late with one of the 35 payments - Navimar refused to allow Sail to exercise the option because of failure to comply with a condition precedent - Navimar submitted that time was of the essence because the lease required that the pay­ments be made "prom­ptly and in accord­ance with the schedule" - In the alterna­tive, Navimar submitted that a time of the essence provi­sion should be implied - Sail claimed that the agreement did not contain a time of the essence provision, either express or implied - Therefore, the doc­trine of substantial non-performance applied because the pre­sumption in bilat­eral contracts that time was not of the essence had not been rebutted - The Supreme Court of Canada held that time was not of the essence - See para­graphs 50 to 72.

Contracts - Topic 2280

Terms - Conditions precedent - General - Time of the essence - [See Contracts - Topic 2051 ].

Contracts - Topic 3530

Performance or breach - Breach - De minimus rule - A charterparty agreement allowed the owner to terminate the char­terer's option to purchase if there was not full compliance with conditions precedent -Later, the owner claimed that the option could not be exercised because, inter alia, the char­terer failed to provide the log books as required by the lease - The trial court applied the de minimus rule and held that the charterer could exer­cise the option - However, the appeal court held that it was a rule that could only be used to deter­mine if a breach had been committed, it could not be used to quantify a breach as being minimal - On appeal, the Supreme Court of Canada observed that "the case law which does exist suggests that the approach of the trial judge is correct, providing that it is spec­ified that a finding of de minimis means that no fun­da­mental breach permit­ting rescission has been committed, not that there has been no breach giving rise to an action in damages" - See paragraph 75.

Contracts - Topic 3554

Performance or breach - Performance of conditions precedent - Time for - [See Contracts - Topic 2051 ].

Contracts - Topic 3555

Performance or breach - Performance of conditions precedent - Waiver of condi­tions precedent - Sail entered into a char­terparty with Navimar with an option to purchase - Navimar refused to allow Sail to exercise the option on the ground that one of Sail's payments had been late (because of a bank's error) - Navimar claimed that full compliance with the lease payment schedule was a condition preced­ent for exercising the option - However, the bank's error only occurred because Navimar had allowed Sail to make month­ly payments by way of uncertified post-dated cheques instead of by the methods specified in the lease (i.e., cash, bank transfer or certified cheques) - The Supreme Court of Canada held that the adoption of the alternative method of payment indicated that Navimar was not insistent upon strict compliance with the method of payment set out in the lease - See paragraphs 81 to 86.

Contracts - Topic 3564

Performance or breach - Performance of conditions precedent - Doctrine of spent breach - Sail entered into a charterparty with Navimar with an option to purchase - Navimar refused to allow Sail to exercise the option on the ground that one of Sail's payments had been late (because of a bank's error) - Navimar claimed that per­fect compliance with the lease payment schedule was a condition precedent for exercising the option - The Supreme Court of Canada held that the doctrine of spent breach was applicable - In considering the issue, the court stated that "this doctrine simply provides that the option clause is inter­preted to mean that condi­tions preced­ent are met providing that the positive coven­ants of the underlying con­tract have been performed at the time of the exercise of the option. ..." - See para­graph 68.

Contracts - Topic 3860

Performance or breach - Time for per­form­ance - Options - [See Contracts - Topic 2051 ].

Equity - Topic 1103

Equitable relief - Contracts - Doctrine of spent breach - [See Contracts - Topic 3564 ].

Shipping and Navigation - Topic 872

Charter of ships - The charterparty - Demise or bareboat charter with purchase option - The plaintiff entered a five year bareboat charterparty with a shipowner, the defendant - The charterparty gave the plaintiff an option to purchase the ship after five years provided that the plaintiff fully performed all its obligations - The defendant refused to sell the ship, alleging that the plaintiff breached the charterparty by, inter alia, making a late payment - The trial court declared that the plaintiff was entitled to exercise the option - The char­terparty required substantial perform­ance - The late payment was remedied by the time the option was exercised - Sub­se­quently, the Supreme Court of Canada af­firmed the trial decision allowing the plaintiff to exercise the option to purchase - See paragraph 87.

Shipping and Navigation - Topic 872

Charter of ships - The charterparty - Demise or bareboat charter with purchase option - A charterparty agreement allowed the owner to terminate the charterers option to purchase if it was late with a payment - The charterer missed a payment because of a bank's error - The owner declined to allow the charterer to exercise the option to purchase - The trial court held that the charterer could exercise the option - The appeal court allowed the owner's appeal - The court stated "[a]bsent strict compliance, there­fore, the holder of an option to purchase can successfully seek enforcement of the option only if his fail­ure to fulfil the con­ditions precedent can be related to the conduct of the owner" - The Supreme Court of Canada allowed the charterer's appeal and allowed the char­terer to exercise the option to purchase - See paragraph 87.

Shipping and Navigation - Topic 872

Charter of ships - The charterparty - Demise or bareboat charter with purchase option - [See Contracts - Topic 9 ].

Cases Noticed:

Canadian Long Island Petroleums Ltd. v. Irving Industries (Irving Wire Products Division) Ltd. - see Irving Industries (Irving Wire Products Division) Ltd. et al. v. Canadian Long Island Petroleums Ltd. and Salin Oil and Gas Co.

Irving Industries (Irving Wire Prod­ucts Division) Ltd. et al. v. Canadian Long Island Petroleums Ltd. and Sadin Oil and Gas Co., [1975] 2 S.C.R. 715; 3 N.R. 430, consd. [para. 13].

Mitsui & Co. (Canada) Ltd. v. Royal Bank of Canada et al., [1995] 2 S.C.R. 187; 142 N.S.R.(2d) 1; 407 A.P.R. 1, refd to. [para. 13].

Margaronis Navigation Agency Ltd. v. Pea­body (Henry W.) & Co. of London Ltd., [1964] 2 Lloyd's Rep. 153 (C.A.), refd to. [para. 14].

Pierce v. Empey, [1939] S.C.R. 247, consd. [para. 16].

Tenax Steamship Co. v. The Brimnes (Owners), [1975] 1 Q.B. 929 (C.A.), consd. [para. 26].

Hongkong Fir Shipping Co. v. Kawasaki Kisen Kaisha Ltd., [1962] 2 Q.B. 26 (C.A.), refd to. [para. 31].

United Dominions Trust (Commercial) Ltd. v. Eagle Aircraft Services Ltd.; United Dominions Trust (Commercial) v. Eagle Aviation, [1968] 1 All E.R. 104 (C.A.), refd to. [para. 33].

Sudbrook Trading Estate Ltd. v. Eggleton, [1983] 1 A.C. 444 (H.L.), consd. [para. 34].

West Country Cleaners (Falmouth) Ltd. v. Saly, [1966] 1 W.L.R. 1485 (C.A.), consd. [para. 38].

Monk Corp. v. Island Fertilizers Ltd., [1991] 1 S.C.R. 779; 123 N.R. 1, refd to. [para. 40].

Dawson v. Helicopter Exploration Co., [1955] S.C.R. 868, refd to. [para. 41].

Daku v. Daku (1964), 49 W.W.R.(N.S.) 552 (Sask. C.A.), consd. [para. 42].

Friesen v. Bomok (1979), 95 D.L.R.(3d) 446 (Sask. Q.B.), refd to. [para. 42].

Nieckar v. Sliwa (1976), 67 D.L.R.(3d) 378 (Sask. Q.B.), refd to. [para. 42].

Nilsson v. Romaniuk (1984), 59 A.R. 39 (Q.B.), refd to. [para. 42].

Kennedy & Beaucage Mines Ltd., Re, [1959] O.R. 625 (C.A.), consd. [para. 44].

Davis v. Shaw (1910), 21 O.L.R. 474 (Div. Ct.), dist. [para. 47].

Lombard North Central plc v. Butter­worth, [1987] Q.B. 527 (C.A.), refd to. [para. 50].

United Scientific Holdings Ltd. v. Burnley Borough Council, [1978] A.C. 904 (H.L.), consd. [para. 51].

Parkin v. Thorold (1852), 16 Beav. 59; 51 E.R. 698 (C.A.), consd. [para. 51].

Stickney v. Keeble, [1915] A.C. 386 (H.L.), consd. [para. 51].

Scandinavian Trading Tanker Co. AB v. Flota Petrolera Ecuatoriana; Ship Scaptrade, Re, [1983] 2 All E.R. 763 (H.L.), consd. [para. 54].

LeMesurier v. Andrus (1984), 31 R.P.R. 143 (Ont. H.C.), revd. on other grounds (1986), 12 O.A.C. 299; 54 O.R.(2d) 1 (C.A.), refd to. [para. 58].

Jacob & Youngs Inc. v. Kent (1921), 129 N.E. 889 (N.Y.), refd to. [para. 58].

Lang v. Provincial Natural Gas and Fuel Co. of Ontario (1908), 17 O.L.R. 262 (Ch. D.), refd to. [para. 62].

Sprague v. Booth (1908), 21 O.L.R. 637 (C.A.), affd. [1909] A.C. 576 (P.C.), refd to. [para. 62].

Hare v. Nicoll, [1966] 2 Q.B. 130 (C.A.), refd to. [para. 62].

Krause v. Bain Bros. Alta. Ltd. (1972), 29 D.L.R.(3d) 500 (Alta. T.D.), refd to. [para. 67].

Bass Holdings Ltd. v. Morton Music Ltd., [1987] 2 W.L.R. 397 (Ch. Div.), consd. [para. 68].

Birchmont Furniture Ltd. v. Loewen (1978), 84 D.L.R.(3d) 599 (Man. C.A.), consd. [para. 69].

Petrillo v. Nelson (1980), 114 D.L.R.(3d) 273; 29 O.R.(2d) 791 (C.A.), refd to. [para. 69].

Runnymede Iron & Steel Ltd. v. Rossen Engineering and Construction Co., [1962] S.C.R. 26, consd. [para. 75].

Gillespie v. Wells (1912), 2 D.L.R. 519 (Man. K.B.), consd. [para. 76].

Tankexpress (A/S) v. Compagnie Financ­ière Belge Des Pétroles S/A (1948), 82 Lloyd's L.R. 43 (H.L.), folld. [para. 81].

Zim Isreal Navigation Co. v. Effy Ship­ping Corp. - The Effy, [1972] 1 Lloyd's Rep. 18 (Q.B. Com. Ct.), consd. [para. 83].

Dominion Grange Mutual Fire Insurance Association v. Bradt (1895), 25 S.C.R. 154, refd to. [para. 94].

Regina Industries Ltd. v. Regina (City), [1947] S.C.R. 345, refd to. [para. 94].

Statutes Noticed:

Canada Shipping Act, R.S.C. 1985, c. S-9, sect. 261(1) [para. 78].

Federal Court Act, R.S.C. 1985, c. F-7, sect. 3 [para. 12].

Authors and Works Noticed:

Annotation, The Law of Options, [1930] 1 D.L.R. 1, p. 2 [para. 42].

Cozillio, M.J., The Option Contract: Irre­vocable Not Irrejectable (1990), 39 Cath. U.L. Rev. 491, p. 509 [para. 42].

Di Castri, V., Law of Vendor and Pur­chaser (1988 (loose-leaf)), vol. 1, pp. 6-12 [para. 67]; 6-16.1 to 6-18 [para. 42].

Halsbury's Laws of England (4th Ed. 1998), vol. 9(1), para. 921 [para. 58]; para. 924 [para. 89].

Perell, P.M., Putting Together the Puzzle of Time of the Essence (1990), 69 Can. Bar Rev. 417, p. 425 [para. 67].

Perell, P.M., Options, Rights of Repurchase and Rights of First Refusal as Contracts and as Interests in Land (1991), 70 Can. Bar Rev. 1, pp. 3 to 4 [para. 42].

Treitel, G.H., The Law of Contract (6th Ed. 1995), pp. 35 to 36 [para. 33]; 685 to 686 [para. 31]; 694 to 695 [para. 50]; 723 [para. 39].

Waddams, S.M., The Law of Contracts (3rd Ed. 1993), pp. 111 [para. 33]; 394 to 396 [para. 31]; 400 to 401 [para. 50].

Counsel:

Elizabeth M. Heneghan, Q.C., for the appellant;

Alain R. Pilotte and Julie Bergevin, for the respondents.

Solicitors of Record:

Elizabeth M. Heneghan, St. John's, New­foundland, for the appellant;

Alain R. Pilotte Law Office, Montreal, Quebec, for the respondents.

This appeal was heard on October 9, 1998, by Lamer, C.J.C., Gonthier, Cory, Iacobucci, Major, Bastarache and Binnie, JJ., of the Supreme Court of Canada.

The decision of the Court was rendered on October 9, 1998. On February 4, 1999, written reasons were delivered in both offi­cial languages and the following opinions were filed:

Bastarache, J. (Lamer, C.J.C., Gonthier, Cory, Iacobucci and Major, JJ., con­curring) - see paragraphs 1 to 88;

Binnie, J., concurring - see paragraphs 89 to 95.